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By XE Market Analysis August 2, 2013 6:14 am
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    XE Market Analysis: North America - Aug 02, 2013

    The dollar was supported overall after a run of firmer U.S. data, which has raised the risk of a firm NFP reading. The market is looking for a number within the 180k to 200k range, which will keep alive expectations of policy tapering in September. In Europe, U.K. construction PMI was much better than expected and provided GBP with a modicum of support, leaving Cable around 1.5150. EUR-USD traded close to 1.3200 after it was unable to sustain lower levels overnight, which may have been symptom of firmer money market rates. EUR-CHF held firm around 1.2380 as local names keyed off USD-CHF rather than the strong Swiss manufacturing PMI release. USD-CAD and USD-JPY held firm around 99.75 and 1.0385 respectively on dollar strength, while AUD-USD was heavy after it breached 0.8900 barriers overnight.

    [EUR, USD]
    EUR-USD had an uneventful European morning session. After failing to sustain a move under 1.3200 in Asia it edged up to the 1.3225 region. There market is in a holding pattern ahead of the U.S. NFP report, which will set the tone ahead. During Thursday's session EUR-USD fell as market participants digested dovish comments from Draghi and more U.S. data strength. A strong NFP release today could reinforce downward pressure as EUR-USD has struggled to sustain the post-Fed spike over 1.3300. A market neutral outturn below 170k could see EUR-USD retest the 1.3300 region, where large offers were re-established during Thursday's Asian session.

    [USD, JPY]
    USD-JPY extended to 99.75 after the London open on macro fund demand. The move higher was a function of general dollar strength and another strong close for the Nikkei as risk builds for a push back over 100.00. According to sources, the BoJ is looking at ways it can get PM Abe to keep the tax hike. A N.Y. based think tank said yesterday in its latest report that the BoJ would hold off from shifting policy while PM Abe works on reform plans, which could have an impact on the debt market. USD-JPY dip buying should persist into the N.Y. session, but without any fresh news it may struggle to clear 100.00 ahead of the NFP report. Meanwhile, Japan raised its real GDP forecast for the financial year 2013 to 2.8%, while CPI was unchanged at 0.5%.

    [GBP, USD]
    GBP found support. Cable ran into buyers ahead of the 1.5100 level, which set the early tone. U.K. construction PMI data came in much stronger than expected at 57.0 in July versus 51.5 in June and helped Cable up to rally highs of 1.5172 from 1.5140 ahead of the release. Follow through buying evaporated as GBP struggles to sustain higher levels since yesterday's BoE policy announcement. Fund selling emerged after a kneejerk rally to 1.5240 on Thursday, which was largely a function of repositioning. The BoE are expected to add details to the formal policy guidance when it releases the quarterly Inflation Report next Wednesday, which is capping the GBP upside.

    [USD, CHF]
    EUR-CHF threatened the 1.2400 region as USD-CHF firmness provided a boost from 1.2370 in Asia. Offers from macro funds have capped the initial test and also forced USD-CHF from 0.9390 rebound highs back to 0.9370. The dollar is expected to lead action into the weekend and was the main driver on Thursday when U.S. data strength triggered a rally out of 0.9300. The CHF continues to focus on external factors rather than domestic leads despite further evidence that the Swiss economy is performing relatively well. The latest Swiss manufacturing PMI reading came in at 57.4 in July from 51.9 previously and was much stronger than market expectations.

    [USD, CAD]
    USD-CAD continued to press higher during the European time zone. Fund names were tipped as good buyers early on from the 1.0350 region and it made steady progress through offers at 1.0370-80 and 1.0390. Over the last week USD-CAD has formed a base around the 1.0250 region and yesterday's higher low encouraged long positioning building. The near-term risk is skewed to a move back over 1.0400, although whether this is sustained will depend solely on today's NFP release. There is no data out of Canada to digest until next Tuesday and domestic markets are closed on Monday for a public holiday.

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